Realisation of exchange rate gains and losses

Related topics

The following describes the process of how to revalue open documents in an EMU currency at the given fixed exchange rate in order to forcibly realise exchange rate gains and/or losses in a pre-selected period.

From January 1, 1999 the exchange rates for the participating EMU nations must be irrevocably fixed. By legal demand, all exchange rate gains/losses for EMU currencies must be entered into the ledger, i.e. no exchange rate variances may occur between the currencies within the union after this date. This means that all open documents in A/R and A/P, issued in one of the EMU currencies, must be revalued using the fixed exchange rate. All exchange rate differences that occur due to the fact that the document was entered with an exchange rate that differed from the fixed one must be realised in a pre-defined period.

There will be two different methods to meet this requirement:

By using the Revalue A/R or A/P open items routine to reflect the gains and losses at year end. See Handle EMU realisations using the Revalue A/R or A/P open items routines and About revaluing A/R open items and About revaluing A/P open items for further information.
By running the A/R or A/P realisation of exchange rates routine. See Tasks to be completed before automatic realisation, Create a simulation of losses and Update transactions.

The routine will handle all open documents within the A/R and the A/P, such as invoices, instalments, credit notes and on account payments.

You get the possibility to decide whether you want to realise gains, losses or both. You may also decide in which period the realisation should be performed and the G/L postings created. An option to simulate the update is also provided.

The routine will always revalue the open amount of the document at the time the routine is run. This means that the routine may be run at any time after the exchange rates have been fixed. Any exchange rate differences that have been realised the normal way after the exchange rates have been fixed and before this routine is run must be re-posted into the correct period manually, if applicable.

Tip: You can easily find out which exchange rates that have been realised at payment entry before this routine is run by printing an A/R or A/P transactions list. Use the following selection criteria to accomplish this:

Accounting period
Transaction currency: (EMU currencies)
Document type: (The applicable document type used for exchange rate differences; in many installations this is EXR.)

The automatic realisation affects the sub-ledgers as well as the G/L.

Sub-ledgers
An exchange rate document is created in the A/R or A/P based on the document type entered on the selection panel for this routine. This will give you the possibility to view the realisation exchange rate document with the invoice in enquiries and listings. The exchange rate document will always receive the same document number as the document it originated from.

Note: The realisation will only affect amounts in system currency. The transaction currency amounts will never be touched even if the document was issued in any of the currencies within the EMU.

General ledger
There are always two postings involved for each exchange rate realisation. See section Accounting for further information.

Preliminary A/P invoices will (due to the fact that they are not legally accepted as invoices) not be included in the automatic revaluation routine. All A/P invoices that are preliminary at the year end of one year should be entered with the correct fixed exchange rate when they are made final the next year, and are therefore not eligible for this routine.

Tip: If you suspect that any documents have been entered with an incorrect exchange rate in any period in one year, then this can easily be checked by running the routine in simulation mode using the following selection criterion:

Select to period: Set to the actual period of the following year.

See Create a simulation of losses for further information.

This routine is part of the Currency conversion tool which means that the SCT application must be installed and activated before the routine will be available. See About running the system currency conversion for further information on how to install the Currency conversion tool.

Accounting

Two G/L postings will be created for each revalued transaction i.e. realised exchange rate. All postings will receive the same voucher number retrieved from the number series defined for the voucher type entered on the selection panel.

Control account
The control account will be debited for exchange rate gains and credited for exchange rate losses. The account number will always be the same as for the revalued document (i.e., it will not be possible to override the control account with the one defined for the document type).

Opposite account
The opposite account to the control account will be the exchange rate gain or loss account. This account will be retrieved from the pseudo account definition for the document type entered on the selection panel. See About working with pseudo accounts for further information.

Enquiries and printouts

G/L transactions – show all the G/L postings for all realised exchange rate transactions that have updated the General Ledger. Tip: You can use the Document type parameter for selection.
A/R transactions and balances – show detail information for all created exchange rate documents and settlement information for the affected open items.
A/P transactions and balances – show detail information for all created exchange rate documents and settlement information for the affected open items.
G/L transaction list – displays details for the exchange rate postings.
A/R balance list – displays the created exchange rate documents and settlement information.
A/P balance list – displays the created exchange rate documents and settlement information.
Exchange rate realisation simulation list – displays information about all open documents eligible for the selected currency.
Exchange rate realisation update list – displays information about all open documents eligible for the selected currency.
Exchange rate realisation error list – displays information about which exchange rates that must be entered in the Exchange rate table before a realisation can be run based on your selections.